What is working capital?

Working capital is a financial metric that represents the difference between a company’s current assets and current liabilities. It indicates a company’s short-term financial health and its ability to meet day-to-day operational expenses. Current assets include items like cash, accounts receivable, and inventory, while current liabilities include accounts payable and short-term debts. A positive working capital means the company has enough assets to cover its obligations, supporting smooth operations. Negative working capital, however, suggests financial strain or liquidity issues. Proper management of working capital is essential for maintaining stability, ensuring suppliers are paid on time, and funding operations without unnecessary borrowing. It is a vital indicator for investors and managers to assess the efficiency of a company’s operations.